UPDATE 4-California gasoline prices set to plunge as spike ends

(Adds Boxer call for investigation, Gas Buddy data, professorcomment) By Braden Reddall and Erwin Seba SAN FRANCISCO/HOUSTON, Oct 8 (Reuters) - The unprecedentedprice spike that added more than 50 cents a gallon to Californiapump prices last week ended as quickly as it began, marketanalysts said, and consumers should see prices fall dramaticallyin the coming week. Political outrage, however, was still heating up as SenatorBarbara Boxer joined calls for a federal investigation intopossible market manipulation. Prices started pulling back slightly on Monday afternoon,according to online filling station tracker Gas Buddy, after theAmerican Automobile Association website reported they had hit arecord of $4.668 per gallon on Monday morning. California Governor Jerry Brown's decision on Sunday toallow an immediate switch to "winter-blend" fuel was a bigfactor in driving wholesale prices down by 60 cents a gallon onMonday, market participants said. "Retail prices will come down as hard as they went up," saidDavid Hackett, president of Stillwater Associates, an energyconsultancy in Irvine, California. "It went up 56 cents in aweek, it will come down that fast." The price spike alarmed consumers and politicians across astate that is famous for its love of the automobile. SenatorBarbara Boxer on Monday called for a Department of Justiceinvestigation into possible price manipulation in gasolinetrading markets. Senator Dianne Feinstein on Sunday made asimilar request to the Federal Trade Commission. Reuters reported on Friday that oil traders said the pricespike had "many hallmarks of a classic short squeeze." Multipletrading sources said that refiner Tesoro Corp. was caught shortof supplies and forced to scramble to buy fuel from othercompanies. Spot market prices jumped by almost $1 a gallon in a matterof days, though trading sources said they saw no signs ofcollusion or deliberate withholding of supply. Both Feinstein and Boxer cited the Reuters report of apossible short squeeze in calling for federal regulators toinvestigate. Boxer, in her letter to the Department of Justice,asked it to "immediately investigate whether any of thesetraders colluded to manipulate and drive up gas prices at theexpense of Tesoro and California consumers".

BITTER MEMORIES Californians have bitter memories of the supply shortagesand price spikes that hit the electricity market more than adecade ago and were later found to have resulted from marketmanipulation led by the now-defunct Enron Corp. Jason M. Jones, a music producer who was gassing up hisVolvo in Santa Monica on Monday, said he was fearful of furtherprice gyrations. "I feel they're taking advantage of thesituation in Santa Monica," he said. California gasoline prices are traditionally among thehighest in the country. The state is largely cut off fromnational pipeline networks and refinery centers, and requiresmore expensive, cleaner-burning gasoline in the summer. The recent price surge was initially set off by a series ofrefinery mishaps, including an August 6 fire at a big Chevron refinery in Richmond and an Oct. 1 power outage at ExxonMobil Corp's Torrance facility near Los Angeles. The Torrance plant is now back online, helping to alleviatesupply constraints. Brown's order to allow winter-blend gasolineto be sold immediately, well ahead of the normal Oct. 31transition date, was also a big factor in relieving supplyconcerns. "I think prices will come down pretty quickly," said JamesHamilton, an economics professor at the University ofCalifornia, San Diego. "The measures Governor Brown adopted areexactly the right ones."

SLUGGISH PRICES BOTH WAYS Hamilton acknowledged that some academic studies show it cantake a "little bit longer" for prices to come down than it takesfor them to go up. But he detected sluggishness in bothdirections, suggesting some Southern California retailers mayhave been wary of angering customers by increasing too fast. "A few stations didn't raise prices as quickly as others,and that created shortages at those stations," he said. Southern California bore the brunt of the supply disruptionslast week and faced the highest prices in the state, with $5 pergallon spotted in some areas. At one station in West Los Angeles, Rick Lee, a restaurantand club manager in his 40s, said he had not yet noticed a fallin prices. "For now I'm just putting in $40 at a time and notfilling up my tank in anticipation that prices will go down orthat someone will bail us out," he said.